On March 31 2016 Canseco Plumbing Fixtures purchased equipme

On March 31, 2016, Canseco Plumbing Fixtures purchased equipment for $66,000. Residual value at the end of an estimated four-year service life is expected to be $6,000. The company expects the machine to operate for 15,000 hours.

Calculate depreciation expense for 2016 and 2017 using straight line method.

Calculate depreciation expense for 2016 and 2017 using sum-of-the-years’-digits method.

Calculate depreciation expense for 2016 and 2017 using double-declining balance method.

On March 31, 2016, Canseco Plumbing Fixtures purchased equipment for $66,000. Residual value at the end of an estimated four-year service life is expected to be $6,000. The company expects the machine to operate for 15,000 hours.

Solution

Answer a

Depreciation using Straight Line Method (SLM)

Cost of the eqipment = $66,000

Residual value = $6,000

Useful life of asset = 4 years

Annual depreciation under SLM = (Cost - Residual value) / useful life in years

= ($66,000 - $6,000) / 4  

= $15,000

Answer -b

Calculation of depreciation using sum of years digit method:

Applicable percentage =     Number of years of estimated life remaining at the beginning of the year

                                                                      SYD

SYD =   n(n+1)/2 where n is the estimated useful life of the asset.

Year

Remaining
estimated useful
life at beginning of year

SYD

Applicable
percentage

Annual
depreciation

1 (2016)

4 years (on 01/04/2016)

4(4+1)/2 = 10

4/10 = 40%

(66,000 – 6,000) x 40% = $24,000

(01/04/2016 to 31/03/2017)

01/04/2016 to 31/12/2016 (9 month) = 24,000 X (9/12) = $18,000

2 (2017)

3 years

10

3/10 = 30%

(66,000 - 6,000) X 30% = $18,000

(01/04/2017 to 31/03/2018)

01/01/2017 to 31/03/2017 (3 month)

= 24,000 X (3/12) = $6,000

01/04/2017 to 31/12/2017 (9 month)

= 18,000 X (9/12) = $13,500

Total depreciation in 2017

6,000 + 13,500 = $19,500

  

Answer-c:

Calculation of depreciation using double-declining balance method:

Straight line method rate (SL rate) = ¼ X 100 = 25%

Declining balance rate                    = 2 X 25% = 50%                       

Year

Net book value (NBV),
beginning of year

Double-declining balance depreciation (beginning NBV X Declining balance rate)

Net book value,
end of year

2016

$66,000

   (on 01/04/2016)

$66,000 X 50% = $33,000

(01/04/2016 to 31/03/2017)

$33,000 X (9/12) = $24,750

(01/04/2016 to 31/03/2016)

$33,000

2017

$33,000

(on 01/04/2017)

$33,000 X 50% = $16,500

(01/04/2017 to 31/03/2018)

$33,000 X (3/12) = $8,250

(01/01/2017 to 31/03/2017)

$16,500 X (9/12) = $12,375

(01/04/2017 to 31/12/2017)

Total depreciation

= ($8,250 + $12,375) = $20,625

Year	Remaining estimated useful life at beginning of year	SYD	Applicable percentage	Annual depreciation
1 (2016)	4 years (on 01/04/2016)	4(4+1)/2 = 10	4/10 = 40%	(66,000 – 6,000) x 40% = $24,000 (01/04/2016 to 31/03/2017)	01/04/2016 to 31/12/2016 (9 month) = 24,000 X (9/12) = $18,000
2 (2017)	3 years	10	3/10 = 30%	(66,000 - 6,000) X 30% = $18,000 (01/04/2017 to 31/03/2018)	01/01/2017 to 31/03/2017 (3 month) = 24,000 X (3/12) = $6,000
01/04/2017 to 31/12/2017 (9 month) = 18,000 X (9/12) = $13,500
Total depreciation in 2017 6,000 + 13,500 = $19,500